Crisis report: more concern for the new member states

Romania
European Institute of Romania
 
Daniel Dăianu, MEP for PNL[1] and former Minister of Finance, addressed at the end of October 2008 a written question to the European Commission regarding the fate of emerging economies, i.e. those of the new EU member states, in the current and future context of the crisis. The main objection of the Romanian MEP is that “most talk about rescue packages in the financial industry, in the EU, concerns, basically, Eurozone member countries and other older EU member states. The EU new member states are hardly mentioned in this regard”[2]. The trouble with these member states is that their economies “do not benefit of the advantages of having a reserve currency of their own, have large current account deficits, and are feeling the pain of the flight to safe investments. All this is putting tremendous pressure on their currencies and is complicating immensely the tasks of local central banks”[3]. Facing such risks, the question asked by the Romanian MEP is obviously legitimate: “How does the Commission intend to address the specific problems of these economies against the backdrop of the international financial crisis and a spreading recession in Europe?”[4].
 
In this context, one journalist notices that the borderline between the ‘old’ and the ‘new Europe’, between the West and the East, is in force again, “and this time it relates to very real economic and financial aspects”[5]. Furthermore, the media speaks about the illusion of a single European plan created to avert the effects of the financial crisis and the ensuing recession, a plan which the Union cannot force on the member states: “Even though the European banking system is more prudent than the American one, the gust of the crisis has long crossed past the ocean. But Europe cannot come up with a ‘federal’ type of answer for the crisis, it can only put forward a ‘coordinated’ one. The EU has no political, technical and juridical means in order to implement a common plan. Each EU member state maintains its sovereignty in terms of budget, and the answer to the crisis remains a national one”[6].
 
The coordinated response given at the community level, essentially a single European anti-crisis plan made up by a piecemeal approach at the level of member states, is meant to take effect in a highly interdependent economic world. Thus, going from a micro to a macro approach, the actors will continue to be interdependent but in order to restore confidence in the system, the system itself will have to undergo a series of changes in regulation. This is what the EU aimed at in November in Washington, at the G20 Summit, and the Union’s performance in terms of the measures put forward and the way it was represented was interpreted as a strong achievement: “The image in Washington was that of a great success of the European Union, present in the summit both by means of its members in the G7 (the group of industrialised nations) and as a institutional body per se. […] The European Union officially (not to mention subtext references) called for a fundamental restructuring of the international financial system, based on strong regulations and checks from states or international structures which have been delegated authority in this respect by the governments”[7]. The economic analyst and former Reform Minister, Ilie Şerbănescu, goes on to argue that the package of measures put forth by the Union is “coordinated, solid and very broad. There were virtually no problems resulted from the current crisis that the Union’s plan did not address and for which a treatment proposal was not presented: transparency on the financial markets; risk prevention systems for high risk investment funds; central role of the International Monetary Fund in a more efficient financial architecture; holding in check rating agencies and off-shore territories.”[8]
 
At the official level, Romanian President, Traian Băsescu, unveiled that the major directions of the Union’s position at the G20 Summit were drawn up on the occasion of the informal reunion of the heads of state and government of the EU member states that took place at the beginning of November and that the EU opts for a reform of the international financial system. This structural vision that the Union has in addressing the crisis, which ultimately relates to a ‘never again’ type of philosophy, is welcomed by the Romanian President by virtue of the importance that he attaches to the EU position in the new global context: “By addressing the issue of the reform of the international financial system, the European Union – and I am making this statement in all responsibility – is openly taking on a leader vocation in global economy.”[9]
 
The ripple effect of the financial crisis comes at a time of change in the global architecture. The world is turning increasingly multipolar as the rise of Brazil, Russia, India and China (the ‘BRICs’) has deep economic and geopolitical implications.[10] In the opinion of the Romanian President, Traian Băsescu, the power of the emerging economies can under no circumstance be ignored: “It is clear that the current system, agreed in Bretton Woods, is a system that needs corrections that reckon both the strength that the EU has gained in time and the emerging markets. The international financial system cannot be frozen in its initial architecture, because of the economic realities of the European Union and those of the emerging economies like China, India and Brazil.”[11]
 
In view of the realities of a multipolar world, and bearing in mind the European wish for a multilateralist approach in the international realm, the European Union has to stand ready to share the responsibilities derived from its increasingly important role in the global architecture. Objectively, this translates into a more efficient ‘burden-sharing’ in all aspects of global governance, from the commitment in Afghanistan to the challenges of global warming. As to what the future holds, Daniel Dăianu’s comments may offer a glimpse at what comes next: “The EU and US will come out of this crisis with reshaped economies (with larger public sectors) and will continue to be, fundamentally, liberal democracies. But the financial crisis has already weakened them and will not halt the ascendancy of the new global powers. The future will be driven by a competition between liberal democracy and authoritarian forms of capitalism (principally exemplified by China and Russia). […] Western countries will have to come to grips with their weakened relative status in the world economy and shed much of their hubris in dealing with the rest of the world, for their own sake”[12].




[1] National Liberal Party - Partidul Naţional Liberal (PNL).


[2] See: http://www.daniel-daianu.eu/activities_in_the_ep-questions-95-do_not_lea... (last access 15 January 2009).


[3] Ibid.


[4] Ibid.


[5] See Mircea Vasilescu: Noua şi fragila Europă (“The new and fragile Europe”), Dilema Veche, 6-12 November 2008, available at: http://www.dilemaveche.ro/index.php?nr=247&cmd=articol&id=9450 (last access: 17 January 2009).


[6] See Rodica Palade: Autism romanesc in vreme de criza (“Romanian autism in times of crisis”), Revista 22, 15 October 2008, available at: http://www.revista22.ro/autism-romanesc-in-vreme-de-criza-4876.html (last access: 17 January 2009).


[7] See Ilie Şerbănescu: G 20 – prima consecinţă majoră a crizei (“G20- the first major consequence of the crisis”), Jurnalul Naţional, 13 January 2009, available at: http://www.jurnalul.ro/articole/142194/g-20--prima-consecinta-majora-a-c... (last access: 15 January 2009).


[8] Ibid.


[9] See: http://www.presidency.ro/?_RID=det&tb=date&id=10474&_PRID=ag (last access: 15 January 2009).


[10] See Daniel Dăianu: Keynes, not Marx, is back, European Voice, 21 October 2008, available at: http://www.europeanvoice.com/article/2008/10/keynes,-not-marx,-is-back/6... (last access: 17 January 2009).


[11] See: http://www.presidency.ro/?_RID=det&tb=date&id=10474&_PRID=ag (last access: 15 January 2009).


[12] See: Daniel Dăianu: Keynes, not Marx, is back, European Voice, 21 October 2008, available at: http://www.europeanvoice.com/article/2008/10/keynes,-not-marx,-is-back/6... (last access: 17 January 2009).